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That seems to be the question a lot of folks are asking following the release on Monday of a company survey by AmCham Shanghai and Booz&Co. The survey is definitely interesting, and some of the key findings are troubling. On the other hand, some of the hand wringing seems to be a bit premature.If you don’t want to slog through the actual survey, which is fairly short (twelve pages) but rather dense and filled with some jargon, you might want to read the Financial Times article, which restates what are considered the top three issue that might negatively impact the future performance of Western companies in China.
First, and perhaps the biggest red flag brought up by the survey, is the stance of Western multinational companies (MNCs) towards the Internet and mobile technology.
After surveying 135 companies competing in China (foreign and local), the report found that 93 per cent of Chinese respondents already use, or plan to use the internet as a selling tool – while a staggering 41 per cent of multinationals do not now, and do not even plan to do so in future.
This is rather weird. I find it hard to believe that so many MNCs are just sitting around and ignoring this trend. I have a feeling that some of those surveyed made a conscious decision to not adopt an e-commerce plan. This might be because e-commerce doesn’t make sense for their sector (think of Caterpillar, for example), that doing so is fraught with regulatory hurdles (think pharmaceutical industry), or perhaps the business or legal risk of doing so seemed to much to overcome.
I’m not saying that these MNCs are making the right decision in eschewing e-commerce opportunities, but I bet some of them have good reasons for doing so. For the others? Yeah, that doesn’t bode well at all for hooking up with younger consumers, and to the extent that Chinese firms are jumping on this, you might have a big gap develop.
The second issue is HR. Here’s how the FT put it:
Chinese companies are also blissfully unworried about recruiting and retaining quality staff, with only 13 per cent of Chinese respondents expressing concern about that – compared to nearly three quarters of foreigners. That may reflect another recent trend that could dwarf all the others: a marked decline in the percentage of Chinese job seekers who want to work for a foreign company, instead of a home grown one.
OK, this is a problem, but I fail to see how it is an emerging trend. I’ve read all about this recent change in worker attitudes toward foreign versus domestic employers, and I’m not convinced that it’s real, and if it is, it’s more complex than the reporting on the subject makes it out to be.
But whether worker attitudes have changed or not, I have another problem with the recruitment gap: it started a long time ago and therefore can’t be a “recent trend.” I’ve had foreign clients complain about recruitment for at least the past seven years. For a long time now, it’s been extremely difficult for foreign MNCs to find staff that: know the industry and also have high-level language skills.
It’s hard operating in a foreign country, so it’s not too surprising that local firms have the edge in recruitment now that wages are starting to equalise. On the other hand, you have MNCs whose management is more local than ever, and you have an ever-widening pool of folks out there who have sufficient experience to compete in the global workforce. In other words, I think there might be some countervailing trends that might mitigate this problem for MNCs.
Third, and last, issue relates to R&D spending, a subject near and dear to my heart:
Chinese companies are also investing in research and development for the mainland market far more seriously than their foreign rivals – a trend that multinationals ignore at their peril, says JoAnne Bessler of Booz, one of the report’s authors. Some 61 per cent of Chinese companies surveyed said they were expanding or planning to expand their R&D capability in China, compared to only 26 per cent of Western multinationals.
In some ways, this is the big scary headline of the survey, right? If foreign firms lose their tech edge, what’s left?
The survey’s finding on this item might be true, but then again, I have some doubts. The Chinese government has been hammering this issue for several years now, offering carrots and sticks for local firms to invest in R&D. Some of this has happened, some of it is low quality crap innovation, and some of it is outright lying.
So I’m not sure I trust all these companies when they say that they spend X amount on R&D, or that the investment will be fruitful. They have lots of incentives to inflate those numbers, and it’s also very difficult to measure outcomes in this area.
Lots of Western firms have already built R&D centres here (and of course have offshore capabilities), and many Chinese firms are catching up. To the extent that the Chinese firms will be spending more on such activities in the near term than the foreign companies makes sense, so this is not nearly as scary as it sounds.
Bottom line: are Western MNCs losing their edge to local competition? Well, sure they are. We already knew that. Local firms learned everything that the MNCs could teach them, and then opened up their own shops with even better local knowledge. Of course they are either closing the gap with the MNCs, or even in some cases surging ahead.
But I’m not entirely convinced that e-commerce, HR and technology trends spell doom for MNCs. There are bigger factors at play here, and although MNCs would do well to get ahead of these trends (to the extent that they exist), I’m not as worried about the survey results as others seem to be.
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